ESRB General Board meeting in Frankfurt

The General Board of the European Systemic Risk Board (ESRB) held its 23rd regular meeting on 22 September 2016.

The General Board highlighted the further weakening of financial institutions’ balance sheets as the main risk to financial stability in the EU. The short-term risks related to the United Kingdom’s EU referendum materialised, leading to significant but short-lived volatility, and financial markets quickly recovered. Despite historically large movements in some market segments, financial market infrastructures remained resilient throughout the peak in volatility. European banks continue to be challenged by (i) low profitability in an environment of low nominal growth and interest rates, (ii) structural changes (such as fintech), and (iii) in certain jurisdictions, high stocks of non-performing assets. The General Board emphasised that addressing these challenges should remain a top priority for EU policymakers.

As in previous meetings, the General Board discussed potential vulnerabilities and risks in the EU financial system related to the low interest rate environment. The General Board endorsed the publication of the ESRB report, which discusses the macroprudential issues and structural changes related to the low interest rate environment. The report outlines the ESRB’s assessment of potential risks to EU financial stability and proposes options for macroprudential policy responses. It will be published in the autumn.

Furthermore, the General Board considered the medium-term risks related to vulnerabilities in the EU residential real estate sector.

The General Board also discussed the mandate and strategy of the newly created ESRB High-Level Task Force on Safe Assets. The High-Level Task Force, which is chaired by Philip Lane, Governor of the Central Bank of Ireland, will investigate the potential creation of sovereign bond-backed securities, which could comprise senior and junior claims on a diversified portfolio of sovereign bonds. In the course of its investigation, the Task Force will consult public and private sector stakeholders.

The General Board exchanged views on possible improvements to the EU macroprudential policy framework. To this end, the ESRB will respond to the European Commission’s consultation on the review of the EU macroprudential framework.

Finally, the General Board appointed Mr Boris Vujčić, Governor of Hrvatska narodna banka, as a member of the Steering Committee. He replaces Mr Marek Belka, former President of Narodowy Bank Polski, whose term of office on the Steering Committee has come to an end.

The ESRB has today released the 17th issue of its risk dashboard. The risk dashboard is a set of quantitative and qualitative indicators of systemic risk in the EU financial system.

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